Adjustable Rate Mortgage – (ARM) This is a loan where the interest rate will vary over set periods of time. Most people who want a lower payment upfront but know over a period of time they can afford a higher payment will select this loan type.
Allowance – This is an amount of money from a seller or builder for undisclosed items to replace or chose at buyer’s selection. Example: Design options, carpets, hardwoods, appliances, etc.
Annual Interest rate – This is the rate you pay on interest each year. Rates can vary due to credit scores, time employed & amount of debt one already has.
Binder - An earnest money (EM) deposit provided by the buyer to bind the purchase of the home according to the terms of the contract between seller and buyer.
Builder Warranty - Most builders will supply a one year (bumper to bumper) warranty on a new home for workmanship and materials and a ten year warranty on the structure. Warranties are also provided by manufacturers, for new home buyers, such as a 20- or 30-year roof warranty and appliance warranties.
Builder Insurance - A builder will typically have this coverage to protect themselves during the construction period. Buyer’s can add extended coverage in the contract for their protection.
Build on your own lot - A chosen builder will construct a new home on a lot you already own or are going to purchase, not owned by the builder.
Building Codes – These are building requirements for new construction and overseen by the town municipality. At each stage of construction an inspector from the town will come out to make sure construction is done correctly and meets current building codes. You will have these at framing, electrical, plumbing & insulation.
Buy Down Mortgage – You can pay additional money to buy down and interest rate for a set amount of time to get your monthly payment lower.
Change order – This is any type of change to construction or design after construction has passed certain stages. If you are allowed to make the change, you will pay for the selection plus a separate fee for the change order. The change order fee is normally $100 - $500 but could be higher.
Conditions- Covenants and Restricts (CC&R’s) - The rules and regulations that define how a property may be used. These are used to protect the owners and are created by the developer or a homeowners’ association that must be followed by all residents in a master-planned community.
Construction Loan - A buyer will obtain this type of loan buy land and build a custom home. This type of mortgage wraps the land and home in one loan.
Contingency - When the contract states that the contract will be null and void and the deposit returned if the contracted conditions are not met; for example, an existing home/resale is normally contingent on a satisfactory home inspection and/or on the buyer obtaining financing. Can also be based on the appraisal. Most contracts for newly built homes are non-contingent.
Custom - A home constructed to the buyer's specifications rather than according to a builder’s floor plan.
Deposit - Money due when a purchase contract is signed for a newly built home. This amount can vary based on the builder and can range from a few hundred dollars to thousands of dollars depending on the home price and whether the buyer is working with a national builder or a custom builder.
Down Payment - Cash due for the portion of the purchase that the buyer is not obtaining a loan for which is due at the settlement; many conventional loans require a down payment of 5%, 10%, or 20%, while FHA loans require 3.5%; some VA loans are available with zero down payment.
Draw - Money available to the chosen contractor at different established periods of the building process so they have access to funds to buy materials and pay contractors. Custom home builders typically arrange access to a draw on the construction loan taken out by the buyer.
Escrow – Payments set aside for your taxes and homeowner’s insurance. These fees are included in your mortgage payment and held by the lender.
Federal Housing Administration (FHA) – This is a government based loan that offers low down payments of 3.5%. Maximum purchase price for this loan type is $368,000.
Hazard insurance – This insurance protects you financially in case of fire and other damages to your property.
HERS Index – This your homes energy rating. The standard was created by the Residential Energy Service network. To test for this there is a “blow” test done once construction is complete. The lower the score, the more efficient your home is.
Home Warranty Program – This is a home warranty that can be purchased yearly to cover your homes components. Example : HVAC, electrical, plumbing, appliances, etc. This is something that can be negotiated during the contract process to be paid by either party. This is not for new construction homes because they normally carry a builder warranty.
Home Owners Association (HOA) – Neighborhoods have these to regulate the rules set for homeowners to follow. These can also include landscaping and other varices amenities for the neighborhood as a whole. Each homeowner in the neighborhood would pay the same amount to the association. This is normally a yearly fee.
Implied Warranty -State regulations note that all builders offer an implied warranty on their homes regardless if they also offer a written warranty. The implied warranty means builders are held responsible for repairing their work for a certain period, such as ten years. Without written documentation, homeowners must obtain a legal resolution of a dispute if the builder doesn’t honor the implied warranty.
Mortgage Insurance - This protects the lender against loss if the borrower defaults on the loan. FHA loans require a certain amount of months for insurance to be escrowed at settlement in addition to annual mortgage insurance; conventional loans require private mortgage insurance (PMI) for borrowers with less than 20% in home equity. Once 20 % in home equity is reached the PMI can be removed by the borrower with their mortgage company.
Performance Bond - Money (typically 10% of the total price) that a contractor has to deposit with a government agency as an insurance policy, for the buyer, to guarantee the contractors’ proper and timely completion of a project.
Plot Plan - A layout of the lot completed by a surveyor that shows the location of the home on the lot any easements, property lines, required setbacks, and legal description.
Property Survey - A survey that shows the boundaries of a person’s land.
Punch List - A list created by the general contractor, project manager, or homebuyers of items that need to be repaired by the contractor prior to closing and/or after closing. Some examples are; paint touch ups, uneven door that does not close properly, damaged wood flooring or chipped concrete.
R-Value - A number identifying the thickness of insulation in the home. The higher the number, the better grade of insulation. The appropriate R value for a new home varies according to the climate and the place in the home where insulation is being installed.
Ratified Contract - A contract that has been signed and agreed upon by both the buyers and the sellers and their agents.
Redline or relined plans – These are changes to plans, normally marked in red so you can see the change.
Sales Contract – This is a contract between a buyer & seller for real property. The contract would outline what property is being bought and sold, purchase price, closing date and any other items included in the agreement.
Semi Custom - This is a home built by a production builder that will let you make custom changes to plans and/or design options.
Closing Fees – Fees charged by an attorney to review settlement statements, provide a clear title on the property, and process paperwork for the closing.
Spec Home – Builders will start construction on homes that do not have a buyer so there is inventory in various stages of construction for people who want a new home but do not have time to build.
Title insurance – Lenders normally require this insurance for the title on your property, in case of title defect.
Walk-through or walk-thru – This is for the buyer to walk the property prior to closing to make sure all items agreed to in the contract have been complete prior to closing. For new construction you would create a punch list of items that the builder would fix/repair prior to closing.
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